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The Wall Street Journal reports that the US Department of Justice (DOJ) has warned Apple and five major US book publishers that it intends to sue them “for allegedly colluding to raise the price of electronic books.”

Here’s how the Journal framed the story:

“The case centers on Apple's move to change the way that publishers charged for e-books as it prepared to introduce its first iPad in early 2010. Traditionally, publishers sold books to retailers for roughly half of the recommended cover price. Under that ‘wholesale model,’ booksellers were then free to offer those books to customers for less than the cover price if they wished. Most physical books are sold using this model.

“To build its early lead in e-books, Amazon Inc. sold many new best sellers at $9.99 to encourage consumers to buy its Kindle electronic readers. But publishers deeply disliked the strategy, fearing consumers would grow accustomed to inexpensive e-books and limit publishers' ability to sell pricier titles.”

When Apple prepared to introduce the first iPad, the story goes on, “the late Steve Jobs, then its chief executive, suggested moving to an ‘agency model,’ under which the publishers would set the price of the book and Apple would take a 30% cut. Apple also stipulated that publishers couldn't let rival retailers sell the same book at a lower price.” This then allowed the publishers to apply pressure to Amazon to adopt the same model, which raised the price of e-books available for the Kindle.

The Journal notes that “several of the parties have held talks to settle the antitrust case and head off a potentially damaging court battle, these people said. If successful, such a settlement could have wide-ranging repercussions for the industry, potentially leading to cheaper e-books for consumers. However, not every publisher is in settlement discussions.”
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